Life insurance, In Plain English

by Andrew Freiburghouse

Your life insurance policy might begin: "While every attempt has been made to ensure the accuracy of the following statements, the legal documents, policies, or certificates pertaining to this benefit prevail in the event of any discrepancy…" And then you end, becoming very sleepy.

If you're in that camp, this article's for you--written in plain English.

First, Biggest Issue: Term vs. Whole Life The purpose of this article is not to define these terms, but to stress the importance of knowing the difference between the two in relation to your particular situation. Term life insurance lasts for only a certain term. Whole life insurance lasts for your whole life.

Beyond the obvious, however, lies a rat's nest of options. If you bought term life insurance, how long is the term? Whole life, is it a traditional whole life policy, or a universal whole life policy, or a variable whole life policy, or a universal-variable whole life policy?

Confused yet? Possibly. But as long as you've taken the time to really understand the big difference between term and whole life insurance--one's for a predetermined term, the other forever--you're 95 percent of the way there to understand what your policy means for your real life.

It's a very sad day when someone learns the difference between term and whole life insurance the hard way, by thinking they are covered when in reality their policy is expired, or by committing to a monthly payment amount that does not allow them to live fully while they're alive.

Remember the Beneficiary The "beneficiary" of an insurance policy is the one who receives the benefit. Again, seems absurdly obvious, but is less well understood than it should be.

When you read through your life insurance policy, then, be it term or whole, think about whom you're trying to protect through this purchase. Specifically seek out the word "beneficiary" in the policy, and read those sentences with particular care. That's your spouse they're talking about, or your child, or your grandchild. Read your policy with that--with them--in mind.

How much do they get, if you go? Is it enough?

Your policy should answer those two questions in no uncertain terms. If it doesn't, maybe it's not so much a problem with your reading as it is with their writing.

Ask Questions until You UnderstandSpeaking of which, here were come to our last bit of advice but by no means our least: When someone's trying to sell you something, they should explain it to you until you understand it. Tell them you like things said in plain English. If they can't do that, don't buy.